The Influence Of Financial Performance Factors, Size, Leverage, And Local Revenue On Economic Growth With The Allocation Of Capital Expenditure As A Moderating Variable In Regencies /cities In North Sumatra Province

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The Influence of Financial Performance Factors, Size, Leverage, and Local Revenue on Economic Growth with the Allocation of Capital Expenditure as a Moderating Variable in Regencies/Cities in North Sumatra Province

Introduction

Economic growth is a crucial aspect of a region's development, and it is influenced by various factors, including financial performance, size, leverage, and local revenue. In the context of regencies and cities in North Sumatra Province, understanding the impact of these factors on economic growth is essential for policymakers to formulate effective strategies for regional development. This study aims to identify and analyze the effect of financial performance factors, size, leverage, and local revenue on economic growth in regencies and cities in North Sumatra Province, with the allocation of capital expenditure as a moderating variable.

Methodology

This study employed a quantitative descriptive method, with the object of study covering all regencies and cities in North Sumatra Province. The data used was secondary data obtained from the Regency and City APBD reports in North Sumatra from 2011 to 2015. Multiple linear regression analysis was conducted to analyze the data.

Analysis of Factors Affecting Economic Growth

  1. Ratio of Independence: This ratio shows the extent to which a region can finance government activities from its own source of income. A high ratio reflects the ability of regions in managing income, which supports investment for economic growth. The ratio of independence is a critical factor in determining a region's financial stability and its ability to invest in economic development projects.

  2. Effectiveness and Efficiency Ratio: Both are closely related to budget management and resource use. A high effectiveness ratio shows that government programs can run well and achieve the targets set, while an efficiency ratio shows that every rupiah spent gives maximum results, contributing to economic growth. Effective and efficient budget management is essential for achieving economic growth.

  3. Size (Size): The size of the area includes the population and area. Areas with a larger size tend to have a larger market potential and can attract more investment, thereby encouraging economic growth. Size is a critical factor in determining a region's economic potential and its ability to attract investment.

  4. Leverage: Although it does not show a significant effect, leverage (use of debt) remains an important factor. Good debt management can help regions finance infrastructure projects that contribute to growth. Leverage can be a double-edged sword, as excessive debt can lead to financial instability, while prudent debt management can support economic growth.

  5. Regional Original Revenue (PAD): High PAD allows local governments to invest in various projects that support economic growth, such as infrastructure development and public services. PAD is a critical source of revenue for local governments, and its management is essential for achieving economic growth.

The Role of the Allocation of Capital Expenditure as a Moderating Variable

The allocation of capital expenditure is a significant moderating variable in this study. With the right allocation of capital expenditure, the relationship between financial performance factors and economic growth can be stronger. The use of efficient and effective capital expenditure will support the development of infrastructure, which in turn increases investment attractiveness, creates employment, and encourages sustainable economic growth.

Conclusion

Based on the results of the study, it can be concluded that financial performance factors such as the ratio of independence, effectiveness, efficiency, size, and PAD have a significant influence on economic growth in the regencies/cities of North Sumatra Province. Meanwhile, the allocation of capital expenditure plays an important role as reinforcement of the relationship, showing that good management of regional finances will strongly support overall economic growth. This research is expected to be a reference for policymakers in formulating better regional financial management strategies in order to achieve optimal economic growth.

Recommendations

Based on the findings of this study, the following recommendations are made:

  1. Improve financial management: Local governments should improve their financial management by increasing the ratio of independence, effectiveness, and efficiency.
  2. Increase PAD: Local governments should increase PAD by improving tax collection and reducing unnecessary expenses.
  3. Optimize capital expenditure: Local governments should optimize capital expenditure by allocating funds efficiently and effectively to support infrastructure development and public services.
  4. Develop infrastructure: Local governments should develop infrastructure to increase investment attractiveness, create employment, and encourage sustainable economic growth.

By implementing these recommendations, local governments in North Sumatra Province can achieve optimal economic growth and improve the quality of life of their citizens.
Frequently Asked Questions (FAQs) on the Influence of Financial Performance Factors, Size, Leverage, and Local Revenue on Economic Growth in Regencies/Cities in North Sumatra Province

Q: What are the financial performance factors that influence economic growth in regencies/cities in North Sumatra Province?

A: The financial performance factors that influence economic growth in regencies/cities in North Sumatra Province include the ratio of independence, effectiveness, efficiency, size, and PAD (Regional Original Revenue).

Q: What is the ratio of independence, and how does it affect economic growth?

A: The ratio of independence shows the extent to which a region can finance government activities from its own source of income. A high ratio reflects the ability of regions in managing income, which supports investment for economic growth.

Q: What is the effectiveness and efficiency ratio, and how does it affect economic growth?

A: The effectiveness and efficiency ratio are closely related to budget management and resource use. A high effectiveness ratio shows that government programs can run well and achieve the targets set, while an efficiency ratio shows that every rupiah spent gives maximum results, contributing to economic growth.

Q: What is the size of the area, and how does it affect economic growth?

A: The size of the area includes the population and area. Areas with a larger size tend to have a larger market potential and can attract more investment, thereby encouraging economic growth.

Q: What is leverage, and how does it affect economic growth?

A: Leverage (use of debt) is an important factor in determining a region's financial stability and its ability to invest in economic development projects. Good debt management can help regions finance infrastructure projects that contribute to growth.

Q: What is PAD (Regional Original Revenue), and how does it affect economic growth?

A: PAD is a critical source of revenue for local governments, and its management is essential for achieving economic growth. High PAD allows local governments to invest in various projects that support economic growth, such as infrastructure development and public services.

Q: What is the role of the allocation of capital expenditure as a moderating variable in influencing economic growth?

A: The allocation of capital expenditure is a significant moderating variable in this study. With the right allocation of capital expenditure, the relationship between financial performance factors and economic growth can be stronger. The use of efficient and effective capital expenditure will support the development of infrastructure, which in turn increases investment attractiveness, creates employment, and encourages sustainable economic growth.

Q: What are the recommendations for policymakers to achieve optimal economic growth in regencies/cities in North Sumatra Province?

A: The recommendations include:

  1. Improve financial management: Local governments should improve their financial management by increasing the ratio of independence, effectiveness, and efficiency.
  2. Increase PAD: Local governments should increase PAD by improving tax collection and reducing unnecessary expenses.
  3. Optimize capital expenditure: Local governments should optimize capital expenditure by allocating funds efficiently and effectively to support infrastructure development and public services.
  4. Develop infrastructure: Local governments should develop infrastructure to increase investment attractiveness, create employment, and encourage sustainable economic growth.

Q: What are the implications of this study for policymakers and stakeholders in regencies/cities in North Sumatra Province?

A: This study provides valuable insights for policymakers and stakeholders in regencies/cities in North Sumatra Province to develop effective strategies for achieving optimal economic growth. By understanding the influence of financial performance factors, size, leverage, and local revenue on economic growth, policymakers can make informed decisions to improve the quality of life of their citizens.